Early childhood education and care

Michael Klapdor and Marilyn Harrington, Social Policy

Key issue
The 45th Parliament will need to decide between competing approaches to the way in which government assists families with the costs of child care.
The future of early childhood education services will also have to be considered with the key national partnership agreement expiring in 2017.

Snapshot of child care in Australia

In 2015, around 1.2 million children were attending formal child care services. The median hourly fee for a long day care service in 2015 was around eight dollars an hour. A family with gross income under $100,000 per year would spend around ten per cent of their disposable income on child care if they had one child in care for 50 hours a week (after receiving government fee assistance). Child care fees have been increasing, on average, by around seven per cent per year over the last decade.

Australian Government assistance

The two main payments by which the Australian Government assists families with the cost of child care are Child Care Benefit (CCB) and Child Care Rebate (CCR).

CCB is income tested, paid at hourly rates and available to those using services approved by or registered with the Australian Government. Parents/carers must meet an activity test (work, training or study for at least 15 hours a week) to be eligible for more than 24 hours of CCB per child per week (up to a maximum of 50 hours per child per week). CCR is a non-means tested payment that covers 50 per cent of out-of-pocket costs of approved child care services up to a maximum of $7,500 per child per financial year. CCR has an activity test as well but there is no minimum hourly requirement.

The Government also provides payments to specific groups such as those on income support looking for work, and provides funding directly to some services which offer care to disadvantaged groups or in areas where it is otherwise unfeasible to operate.

The Government estimates that it will spend around $8.6 billion on CCB, CCR and other support for the child care system in 2016–17.

Jobs for Families package

In May 2015, the Abbott Government announced the most significant changes to fee assistance payments in more than 15 years: the Jobs for Families package. The package was in response to a Productivity Commission report on child care and early childhood learning. The package was later revised in December 2015, primarily to make it less generous to higher income earners.

The centrepiece of the package is the Child Care Subsidy (CCS) which would replace existing child care payments. The CCS would offer a payment based on a percentage of an hourly benchmark price or the actual child care service fee, whichever is lower, with the benchmark set by government and differentiating by service type. The benchmark would be based, initially, on average fees plus an additional loading. It would only be increased in line with inflation rather than in line with average fee increases. The rate offered varies by family income:

Table 1: Child Care Subsidy income test

Annual family income	Subsidy rate — % of actual fee or benchmark (whichever is lower)
Up to $65,710	85%
>$65,710 to <$170,710	Tapering from 85% to 50% for each $3,000
$170,710 to <$250,000	50%
$250,000 to <$340,000	Tapering from 50% to 20% for each $3,000
≥$340,000	20%

Source: Department of Education and Training (DET), Overview: Jobs for Families child care package, DET, Canberra, 3 May 2016.

The hours of child care to be subsidised would be based on the number of hours per fortnight parents/carers spent in approved activities such as work, training, study, volunteering or looking for work. Eight to sixteen hours of activities would offer 36 hours of CCS per fortnight; 17–48 hours provides up to 72 hours of CCS; 49 hours+ provides up to 100 hours of CCS. For couples, the partner with the lower number of hours would determine the CCS entitlement. Families with income under $65,000, who do not meet the activity test, would be eligible for a maximum of 24 hours of CCS. Families with income over $185,000 would have their CCS entitlement capped at $10,000 per year.

Cost and timing

When first announced, the package was to cost an additional $3.5 billion over five years including $327.7 million for targeted support to disadvantaged and vulnerable families separate from the CCS. The Government stated that cuts to the Family Tax Benefit program would be used to fund the additional cost. The revised package saw a reduction in estimated expenditure in the first two years on the CCS of around $1.2 billion.

The CCS was originally intended to commence on 1 July 2017. However, in the 2016–17 Budget, the Government announced that the CCS would be deferred until 1 July 2018, citing the failure of the Senate to support the Family Tax Benefit savings.

Reform or patch-up

The Jobs for Families package represents a significant change in direction for child care funding aimed at better targeting assistance, slowing growth in costs for families, and providing simple levers for government to constrain costs. The package is expected to see an increase in parents’ workforce participation—but the increase in labour supply is projected to be relatively small given the $2 billion in additional expenditure on the package its first two years. Criticisms have been made of the activity test, the method for setting the benchmark price, and the number of families worse off under the changes.

At the 2016 election the Australian Labor Party (Labor) committed to using the expenditure allocated to the Jobs for Families package for a new child care policy to commence from 1 January 2017, which includes: increasing CCB rates by 15 per cent, increasing the annual CCR cap from $7,500 per child to $10,000 per child and new administrative powers to constrain excessive fee increases.

Labor’s proposals do not address key issues with the current system identified in the Productivity Commission’s report such as the complexity of the payment system, poor targeting of some programs, and long-term fiscal sustainability. However, the proposals would deliver more immediate relief to families with the costs of child care. While the Government’s policy offers an improvement on the existing system—in terms of simplification and increased assistance to most families—and comes with a sizeable amount of additional investment in child care, there remain issues with its design and the fact that the additional funding is to be drawn from other forms of family assistance. While the Family Tax Benefit cuts do not affect higher income families, low and middle-income families will see the benefits of the CCS partly offset by reductions to these other payments.

Early childhood education—is Australia doing enough?

The imperative for good quality early childhood education (ECE), particularly for children from disadvantaged backgrounds, is undisputed.

A recent Organisation for Economic Co-operation and Development report, What Are the Benefits From Early Childhood Education, reasserts the benefits of ECE (preschool). It also presents evidence about the long-term benefits of ECE participation as shown by the performance of 15-year-old students in the 2009 Programme for International Student Assessment (PISA). An Australian study of national literacy and numeracy tests (NAPLAN) results, Early Bird Catches the Worm, also showed the positive effect of ECE participation.

State and territory governments have primary responsibility for the funding of ECE services. This funding, since 2009, has been augmented by the Australian Government through a series of short-term national partnerships (NPs). The current NP will provide $840.0 million from 2016 to 2017.

Through the NPs, all governments have committed to ‘universal access’ to ECE. The aim is to provide every child with access to a quality ECE program of 15 hours per week or 600 hours in the year prior to full-time schooling.

A question remains, however, as to whether Australia is doing enough in ECE provision. According to the Australian Early Development Census National Report 2015, which assesses children in their first year of school, about one in five children were developmentally vulnerable in one or more areas (domains).

A review found that, in 2013, most jurisdictions were not meeting the NP enrolment targets for disadvantaged and Indigenous children in 2013; hence, the current NP’s focus on these children. There is also concern from state and territory governments and ECE services about the NP’s continuing short-term nature which, it is claimed, has led to increased uncertainty for service delivery and impedes long-term planning.

Australia’s ECE provision is not keeping up with that of other countries. Professor Edward Melhuish from Oxford University is amongst those who argue that Australia is being left behind—other countries are now providing two years of ECE.